Hong Kong, May 26, 2020 -- Moody's Investors Service ("Moody's") has assigned
ratings to Coastal Emerald Limited (Coastal Emerald)'s medium term
note (MTN) program which can either issue instruments supported by a keepwell
deed from Shandong Hi-Speed Group Co., Ltd and guaranteed
by China Shandong Hi-speed Financial Group Ltd or a guarantee from
Shandong Hi-Speed Group Co., Ltd (SDHG, A3 Negative).
Moody's has assigned a (P)Baa2/(P)P-3 backed senior unsecured
program rating for those instruments to be issued and supported by a keepwell
deed from SDHG and guaranteed by China Shandong Hi-speed Financial
Group Ltd. Moody's has also assigned a (P)A3/(P)P-2
backed senior unsecured program rating to the MTN program supported by
a guarantee from SDHG.
In addition, Moody's has assigned a P-3 rating to the
proposed first takedown from the MTN program which is a short-term
note supported by a keepwell deed from SDHG. Net proceeds of the
short-term note will be used for refinancing and general corporate
purposes.
The notes to be issued under a keepwell deed from SDHG will also be unconditionally
and irrevocably guaranteed by China Shandong Hi-Speed Financial
Group Ltd (SHFG).
Coastal Emerald Limited is an indirectly wholly owned subsidiary of SHFG,
which is 42.78% owned by SDHG.
The entity-level outlook on Coastal Emerald is negative,
in line with the outlook on SDHG.
RATINGS RATIONALE
MTN program -- the part guaranteed by SHFG and supported by a keepwell
deed and an equity interest purchase undertaking deed from SDHG
The (P)Baa2 backed senior unsecured MTN program rating incorporates:
1) SHFG's caa1 standalone assessment and; 2) six notches of
affiliate-backed level of support from the SHFG's parent
SDHG whose baseline credit assessment is ba1; as well as 3) two notches
of uplift from a high level of support from the Chinese government,
via SDHG, in times of stress.
The (P)P-3 short-term rating on the MTN program corresponds
to the (P)Baa2 long-term rating in accordance with Moody's approach
for determining short-term ratings based on the standard mapping
guidance the standard mapping guidance described in the cross-sector
rating methodology "Short-Term Ratings". It also incorporates
the high rating transition risk resulting from the negative outlook on
Coastal Emerald and SDHG, SHFG's weak standalone assessment
at caa1, and SHFG's very weak standalone liquidity.
The affiliate-backed support incorporated into the ratings takes
into account the keepwell deed which mandates SDHG's ownership at
above 40% and includes a cross-default provision.
The support also considers SDHG's ownership in and control over
SHFG as well as the operational and financial links between the two entities.
SHFG is one of the three listed subsidiaries under SDHG and a first-tier
subsidiary of the group. SHFG also carries SDHG's name and
logo. Therefore, it is in SDHG's interest to provide
extraordinary support to SHFG in times of stress in preserving SDHG's
reputation.
Moody's believes that the keepwell deed reinforces SDHG's
willingness to support the notes to be issued under the MTN program.
Under the deed, SDHG has committed to:
1) own not less than 40% of the issued share capital of SHFG and
remain the single largest shareholder of SHFG;
2) ensure each of Coastal Emerald and SHFG to remain solvent and a going
concern at all times;
3) ensure each of Coastal Emerald and SHFG to have consolidated net assets
of at least USD1.00 at all times;
4) ensure each of Coastal Emerald and SHFG to have sufficient liquidity
to warrant timely payment by it of any amounts due and payable in respect
of the Notes.
The high level of government support, via SDHG, incorporates
the parent's state-owned background and public policy role.
In Moody's view, while the keepwell deed demonstrates SDHG's willingness
to support SHFG and the notes under the MTN program, it is different
from an explicit guarantee in terms of the nature of judgment and procedures
of enforcement.
MTN program -- the part guaranteed by SDHG
The (P)A3/(P)P-2 rating reflects the unconditional and irrevocable
guarantee from SDHG, which represents an unsecured, unsubordinated
obligation of SDHG. Obligations under the guarantee will rank pari
passu with SDHG's existing and future unsecured and unsubordinated
obligations. Therefore, the (P)A3 rating is the same as the
A3 issuer rating of SDHG. The (P)P-2 is aligned with the
A3 long-term rating and is in accordance with Moody's approach
for determining short-term ratings based on the standard mapping
guidance described in the cross-sector rating methodology "Short-Term
Ratings".
Ratings on individual notes issued under the program will be subject to
Moody's review of the terms and conditions set forth in the final
base and supplementary offering circular and the pricing supplements of
the notes to be issued.
In addition, Moody's does not intend to assign ratings to
notes for which payment of principal or interest is variable and contractually
dependent on the occurrence of a non-credit-linked event
or the performance of an index (non-credit-linked notes).
The only exception will be for notes whose principal and coupon payments
are affected by standard sources of variation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook on Coastal Emerald, it is unlikely the
(P)Baa2 senior unsecured program rating will be upgraded in the near term.
The outlook on the entity could change back to stable if SDHG's
outlook is changed back to stable and there is no material deterioration
in SHFG's standalone assessment. The outlook on SDHG could
return to stable if SDHG's standalone credit profile stabilizes,
reflected by recovering traffic volume and improving leverage on a sustainable
basis, the government withdraws the toll-free policy completely
and the relevant government pass-through support remains.
The notes to be issued under the MTN program supported by a guarantee
from SDHG will be unconditionally and irrevocably guaranteed by SDHG.
Therefore, the (P)A3 rating will be upgraded if the issuer rating
on SDHG is upgraded. However given the negative outlook on SDHG,
an upgrade is unlikely in the near term.
The (P)Baa2 backed senior unsecured program rating could be downgraded
if SDHG's issuer rating is downgraded. A rating downgrade is possible
if the likelihood of support for SDHG decreases, SDHG's standalone
credit profile weakens significantly or its policy functions weaken significantly.
SDHG's baseline credit assessment (BCA) could be lowered if the company
takes on more aggressive debt-funded capital spending, or
it is unable to control the risks associated with its non-railway
and non-toll road businesses. Credit metrics indicative
of downward pressure on the company's BCA include its adjusted funds from
operations (FFO)/debt remaining below 1% on a sustained basis,
primarily driven by its non-financial business segments.
The (P)Baa2 backed senior unsecured program rating could also be downgraded
if SHFG's standalone assessment deteriorates further. SHFG's caa1
standalone assessment could deteriorate if (1) its capital adequacy further
deteriorates or (2) SHFG's linkage to the parent declines and SHFG no
longer receives benefits from the direct or indirect funding support from
the parent.
Given that the (P)A3 backed senior unsecured program rating is assigned
to the MTN program guaranteed by SDHG, this rating is in line with
the parent SDHG's issuer rating. Therefore, if SDHG's rating
is downgraded, the rating would also be downgraded and please refer
to the downgrade triggers on SDHG as listed above.
The principal methodology used in rating the backed senior unsecured MTN
program supported by a keepwell deed from Shandong Hi-Speed Group
Co., Ltd and a guarantee by China Shandong Hi-speed
Financial Group Ltd and the drawdown under this program was Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099.
The principal methodologies used in rating the backed senior unsecured
MTN program supported by a guarantee from Shandong Hi-Speed Group
Co., Ltd were Publicly Managed Toll Roads and Parking Facilities
published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Incorporated in British Virgin Islands, Coastal Emerald Limited
is indirectly wholly owned by China Shandong Hi-Speed Financial
Group Ltd (SHFG). China Shandong Hi-Speed Financial Group
is incorporated in Bermuda and 42.78% owned by the parent
Shandong Hi-Speed Group Co., Ltd (SDHG) which is ultimately
100% owned by the Shandong provincial government. SHFG is
consolidated on the parent's financial statements effective June 2019
and is also the parent's primary offshore financing and investing platform.
As of 31 December 2019, SHFG reported total assets of HK$23.2
billion.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Lan Wang, CFA
Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Yat Man Sally Yim, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
